Question

The U.S. abandoned the gold standard in 1933 when President Roosevelt cut the U.S. dollar’s ties with gold; however, the U.S. continued to allow foreign governments to exchange dollars for gold until 1971, when President Nixon abruptly ended the practice to stop foreigners from exchanging U.S. dollars for our gold reserves. Therefore, the U.S. currently has a fiat money system, meaning the dollar’s value is not linked to any specific asset.

a) What exactly is meant by the gold standard?

b) Why did the U.S. abandon the gold standard in 1933?

c) President Trump’s is advocating that the U.S. return to the gold standard and one of his nominees (Judy Shelton) for the Federal Reserve supports that position. What is President Trump’s rationale for wanting to return to the gold standard?

Answer 1

The gold standard is a monetary system

If a country's currency or paper money has a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold.

Abandoned because

a gold standard,

inflation, growth and the financial system are all less stable. There are more recessions, larger swings in consumer prices and more banking crises.

long-term advantage that makes it harder for governments to inflate prices by expanding the money supply.under this price of selling and buying are fixed for gold .